Westpac Banking Corporation History

Public CompanyIncorporated:1850 as the Bank of New South Wales Employees: 28,534 Total Assets: A$189.8 billion ($93.89 billion) Stock Exchanges: Australia New Zealand Tokyo New York Ticker Symbol: WBK NAIC: 52211 Commercial Banking

Company Perspectives:

A good business should be both financially successful and a good corporate citizen. At Westpac, we know that to produce sound results for shareholders we must not only constantly deliver for our customers, but must meet our responsibilities to staff and the community. We fully accept our responsibility to fulfill our wider corporate social responsibilities and we see it as fundamental to our long-term sustainability and growth. Our vision is to be a great Australian company, judged in the eyes of our stakeholders. Our values are teamwork, integrity, and performance, and they represent the essential spirit of our company. Our strategy aims to provide a superior customer experience in delivering practical financial and banking solutions.

Key Dates:

1817:

The Bank of New South Wales opens for business.

1828:

The bank is reorganized as a joint-stock company.

1850:

The company begins to establish branch offices.

1866:

The Commercial Bank of Australia (CBA) is established.

1893:

Australian banks face a major crisis during an economic depression.

1949:

The Labour party, which introduced the failed Bank Act of 1947, is defeated in the general election.

1957:

The Bank of New South Wales purchases 40 percent of the Australian Guarantee Corporation Ltd. (AGC).

1974:

Australian banks enter the credit card field.

1982:

Westpac is formed from the merger of the Bank of New South Wales and CBA.

1988:

The company acquires the remaining shares of AGC.

1995:

Westpac purchases Challenge Bank.

1996:

The firm merges with Trust Bank New Zealand Limited.

1997:

Westpac merges with Bank of Melbourne.

1999:

Merger talks with National Australia Bank Ltd. are called off.

Company History:

Westpac Banking Corporation is one of the four main banks in Australia along with competitors National Australia Bank, Commonwealth Bank of Australia, and Australia and New Zealand Banking Group. The bank was founded in 1817 and was incorporated in 1850 as the Bank of New South Wales. In 1982, the bank merged with the Commercial Bank of Australia Limited, founded in the state of Victoria in 1866, and changed its name to Westpac Banking Corporation. Westpac's name is derived from the area which it has historically served--the western Pacific. The company caters to over eight million customers--both retail and commercial--and provides banking, investment, insurance, and various other financial services. Operations in Australia account for 68 percent of profits, while New Zealand secures 18 percent, and other regions shore up the remaining 14 percent.

Banking Background

When Australia was settled, in the late 18th century, the colony's economy was based on a system of barter. A variety of foreign coins also circulated, but these usually found their way back overseas in exchange for the many imported goods the colony needed, so Australia had trouble keeping any form of currency in the colony. Governor Laughlan Macquarie was determined to solve his country's monetary problems. To help prevent currency from disappearing overseas, Macquarie had the center cut out of coins, creating a donut-shaped "holey dollar." The center piece, known as a "dump," was worth one quarter of a holey dollar. Still, currency and exchange problems continued to plague the Australian colonies.

In 1816, Governor Macquarie began to push for the establishment of a colonial bank, and a group of 46 subscribers formed a committee to organize the bank's operations. On April 8, 1817, the Bank of New South Wales opened for business in a house in Macquarie Place. Edward Smith Hall was the cashier/secretary, and Robert Campbell Junior was the head accountant. The bank's first depositor was Sergeant Jeremiah Murphy, who entrusted £50 to the new bank.

The bank of New South Wales operated for five years under its original charter, granted by Governor Macquarie, and then for another five under a renewal issued by Governor Brisbane. In 1828, however, the British authorities declared the Bank's charter invalid, claiming that colonial governors had no authority to issue such charters. The Bank of New South Wales was then reorganized as a joint-stock company.

As trade expanded throughout the Australian colonies, the Bank of New South Wales grew. In 1847, it employed the London Joint Stock Bank as its overseas agent in London. Foreign exchange was a growing area of the bank's activities. In 1850, the bank was incorporated by an act of the New South Wales Parliament and was allowed to establish branches. The first branch opened in the Moreton Bay area of what was soon to become the colony of Queensland. A year later gold fever struck Australia, and the bank soon sent its agents directly to the mining regions. Some branches were no more than a tent; others were built with furnaces to smelt gold right on the premises. In 1853, the bank established an office to handle the colony's growing export trade.

The mid- to late 1800s saw widespread development of the country's resources. Bank branches were established at scattered points across the continent. Travel was difficult and often dangerous, as the story of Robert White, the "terror of the bushrangers" illustrates. In 1863, Robert White, an accountant at the Deniliquin branch of the Bank of New South Wales was held up. After putting up a fight, he found himself bound and gagged, and the bank robbers headed out of town with £3,000 in gold and notes. The accountant managed to free himself, however, and was soon on the bandits' trail. He successfully recovered the £3,000 and the bushrangers landed in jail. On another occasion, White was ambushed in Gympie while carrying a great deal of money. He drew his pistol and charged his adversaries, wounding two of them. After his banking career, White was elected to the New South Wales legislative assembly.

The Commercial Bank of Australia Is Created: 1866

In 1866, the Commercial Bank of Australia opened in Melbourne. CBA focused on suburban and rural areas. In 1870, Henry Gyles Turner became general manager of CBA; Turner directed the bank for the next 30 years. By 1876, the bank was operating 34 offices and agencies throughout the Victoria territory. CBA expanded steadily across the rest of the continent and had offices in Sydney, Perth, Adelaide, and Brisbane by 1890.

In 1893, Australian banks faced a major crisis. Overvaluation of urban real estate and a sharp drop in wool prices precipitated a depression. Depositors panicked and scrambled to withdraw their funds. Fewer than half of the 28 conventional banks were able to continue operations without some interruption, but the Bank of New South Wales was able to. Not until after the turn of the century did the economy fully recover. At that time, both the Bank of New South Wales and the Commercial Bank of Australia branched out further. CBA soon moved to Tasmania and New Zealand; "the Wales," as the Bank of New South Wales had come to be known, ventured to Fiji, Papua New Guinea, and Samurai Island. Increased trade with the neighboring islands paralleled a general increase in foreign trade.

In 1914, World War I broke out. Many employees of both the Bank of New South Wales and the CBA enlisted in the Australian Imperial Force. Of the 1,112 men from the two banks who volunteered, 186 were killed in action. In 1918, John Russell French, general manager of the Bank of New South Wales, was knighted for his service in helping Australia finance the war effort.

Australia experienced the economic boom of the 1920s along with the rest of the world. In 1929, on the eve of the Depression, the Bank of New South Wales appointed a new general manager. Alfred Charles Davidson took the helm at a time when Australian banking was undergoing many changes. Davidson introduced a travel department, which later became the largest in the southern hemisphere, and established the British and Foreign Department. The bank stepped up overseas operations in the early 1930s. In 1931, Alfred Davidson was instrumental in the Australian government's decision to devaluate its currency, a move that improved trade conditions for exporters. By the mid-1930s the economy was recovering from the Depression.

World War II brought about strict controls on Australian banking. Bank branches were closed to release manpower for the war effort. The Japanese invasion of the Pacific threatened some of the branches of the CBA and "the Wales." Branches in New Guinea and elsewhere were closed. An air raid on the northern Queensland town of Darwin caused extensive damage to the Bank of New South Wales branch there, and lesser damage to CBA's branch. During the war, the Bank of New South Wales saw 3,330 (65%) of its male staff enlist.

Fighting Nationalization: Late 1940s

After the war, private Australian trading banks were soon entrenched in another conflict. On August 16, 1947 Prime Minister Ben Chifley announced that the banks would be nationalized. According to Chifley's plan, the Commonwealth Bank (Australia's central bank) would acquire the shares of the private banks and then appoint directors to run them as arms of the central bank. The private banks immediately challenged the constitutionality of nationalization and waged a political war to have the Labour Party ousted and eliminate the threat of other obnoxious legislation. The bankers were successful on both counts. The Australian High Court declared the Bank Act of 1947 unconstitutional because it interfered with the freedom of trade and commerce among the states guaranteed in section 92 of the Australian constitution. In 1949, the Labour Party was overwhelmingly defeated in the general election. It was a major victory for the Bank of New South Wales, the Commercial Bank of Australia, and Australia's other private banks.

Throughout the 1950s, the Australian economy was in an upswing. Savings bank deposits were growing in popularity at this time. Before 1956, savings bank operations were conducted exclusively by the government-owned Commonwealth Bank. The Bank of New South Wales entered the savings bank field in the late 1950s and competed aggressively for savings accounts. In compliance with government regulations, the bank earmarked a certain percentage of its savings bank deposits for housing construction loans. Demand for housing and durable goods was high in the 1950s and 1960s. In 1957, the Bank of New South Wales purchased 40 percent of Australia's largest finance company, the Australian Guarantee Corporation Ltd. (AGC). AGC made loans to businesses as well as consumers and was active in investment and merchant banking as well as insurance.

In 1966, Australia switched from pounds to dollars. For the next two years, the public traded in its imperial currency--pounds, shillings, and pence--for new Australian dollars and cents. Banks had the difficult task of converting to the new decimal currency. Machinery had to be changed, staffs had to be retrained, and accounting had to be translated.

In the 1970s, the Bank of New South Wales and the Commercial Bank of Australia diversified both their services and their areas of operation. Both banks opened more branches overseas. At the same time each was busy acquiring different financial companies at home to expand upon the services they provided. The Bank of New South Wales's holding in the Australian Guarantee Corporation increased to 54 percent by the early 1970s, while the Commercial Bank of Australia operated a finance company, General Credit Ltd., as a wholly owned subsidiary. Both banks also became involved in merchant banking. The Bank of New South Wales, for instance, owned a substantial number of shares in Partnership Pacific Ltd., Schroder Darling & Company, and Australian United Corporation. CBA held significant interests in the merchant banks Euro-Pacific Finance and International Pacific Corporation. In 1974, Australian banks entered the credit card field with Bankcard. Banks also got involved in insurance activities in the 1970s.

The Formation of Westpac: Late 1970s-Early 1980s

The mid-1970s saw the Australian continent in a severe recession. During these years the large amount of foreign investment in Australia's raw-commodities industries became a political hot potato. Australians felt that foreign investors had too much say in the allocation and development of their resources, particularly in petroleum and mining operations. The fact remained, however, that Australia lacked the capital to develop industry on its own. A debate over capital market regulations grew louder in the late 1970s. In 1979, growing pressure to deregulate the financial markets led to the appointment of a government committee to investigate the effects deregulation would have on the economy.

The committee, headed by Australian businessman Keith Campbell, reported its findings two years later, and deregulation soon followed. Foreign banks were allowed to set up shop in Australia, and many of the restrictions on the trading banks were removed. By 1982, it had become clear that competition from abroad and at home would be fierce in the future. Anticipating this inevitability, the Bank of New South Wales and the Commercial Bank of Australia decided to join forces to protect their position in the domestic market and strengthen their position overseas. Westpac was formed in October 1982, with Robert White as general manager. The merger was the largest in Australian history.

Robert White began his banking career at the age of 16 at the Bank of New South Wales. He rose through the ranks, becoming general manager in 1978. White was determined to strengthen Westpac's position in world banking. The bank was a leader in the implementation of technology. Westpac's "handybank" automated teller machine network gave customers instant access to their accounts as early as 1980, and had developed substantially after 1982. In 1984, Westpac began work on its CS90 computerized banking system. Employing an IBM mainframe and computer-aided software engineering designed by the Canadian firm Netron, the bank revolutionized computerized banking. By 1988, Westpac officials were boasting the most advanced system in the world.

Diversification and Expansion: Mid- to Late 1980s

Technological innovation was one of Westpac's key goals throughout the 1980s, and diversification was another. The bank stepped up operations in the euro-currency markets. It also opened new offices or branches in Jersey, Los Angeles, Seoul, Kuala Lumpur, and Taipei. Westpac's thrust was rewarded quickly: between 1982 and 1986, assets more than doubled.

In the late 1980s, Westpac took advantage of the deregulated financial markets around the world. In 1986, it took a greater stake in the gold-bullion markets when it purchased part of the London dealer Johnson Matthey Bankers Ltd. In 1987, the bank acquired U.S. bond dealer William E. Pollock Government Securities. Westpac also continued to improve its branch network throughout the Pacific in the face of growing competition from Japanese banks.

Westpac's aggressive moves in the euromarkets and in technological development and application focused a great deal of attention on the bank. Its low exposure to Third World debt helped keep earnings healthy at a time when bad debt provisions were getting the best of many international banks.

On January 1, 1988, Stuart A. Fowler replaced Robert White as Westpac's managing director and CEO. Fowler continued the aggressive campaign begun by White. In 1988, the bank purchased the remaining shares of the Australian Guarantee Corporation, making it a wholly owned subsidiary. As the 1980s closed, Westpac focused on bringing operating costs down through automation and elimination of redundant branch services. The bank's domestic footing was solid; Westpac controlled 25 percent of Australia's bank deposits.

Growth Continues: 1990s and Beyond

During the early 1990s, Australian banks saw profits dwindle as a result of increased exposure to bad loans. Westpac's expansion efforts were put on hold during this time period. By 1995, however, the industry recovered, and while Westpac was financially back on track, it had lost its leading position in the Australian banking industry.

In order to remain competitive, the company once again launched a growth program. It purchased Challenge Bank of Western Australia in 1995 in an A$684 million deal that enabled the bank to gain leading position in the Western region. The Challenge purchased was followed by a merger with Trust Bank New Zealand Limited in 1996. That year, the company secured profits of A$1.5 billion, an increase of 32 percent over the previous year. Then in 1997, Westpac acquired the Bank of Melbourne. During 1998, the company began to offer online banking to its customers.

In 1999, CEO Robert Joss planned to increase Westpac's holdings even further and proposed a merger with National Australia Bank Ltd. (NAB). At the time, Australia had a "four pillar" policy, which discouraged mergers between the region's largest banks. NAB however, wished to challenge the policy and announced the deal. Westpac's board--believing that it was a poor value for shareholders--turned down the deal. Joss resigned after the board's refusal and was replaced by David Morgan.

The new CEO immediately began a restructuring effort designed to reduce Westpac's cost-to-income ratio, which hovered at 58 percent due to its merger activity over the past three years. The ratio was the highest of the four leading banks. As part of the reorganization, the company announced that it would cut up to 3,000 jobs and focus on organic growth.

During the early years of the new century, Australian banks faced new problems. Consumer sentiment was falling rapidly as a result of the introduction of the Goods and Service Tax (GST) and rising interest rates. As Westpac reported its ninth consecutive year of profit growth in 2001, it became a target for angry consumers. In Westpac's 2001 Annual Report the company claimed that anti-bank sentiment was "running red hot." Consumers, the report stated, were unhappy that there were fewer bank branches and felt that banks provided poor problem resolution; they also believed the bank's profits stemmed from consumers being overcharged for services that were once free and that banks cared only about those with large financial portfolios. The annual report also claimed that many consumers approached banks with skepticism, distrust, and impatience.

As such, Westpac's long-term strategy was heavily focused on improving customer satisfaction and creating new environmental and social awareness programs, along with exploring opportunities in Australia, New Zealand, and the Pacific region. While competition remained fierce among the four leading banks in Australia, Westpac's management believed the company was well positioned for future growth.